Published: 02.09.2006

Senate panel approves tax cuts for individuals and businesses

By Howard Fischer

CAPITOL MEDIA SERVICES

PHOENIX - A Senate panel voted on a bipartisan basis Thursday for a broad-based package of cuts for individuals and businesses.

The legislation, approved on a 7-1 vote, would:

- cut personal and corporate income taxes by 25 percent over the next five years;

- eliminate the state property tax now collected for school funding;

- nearly triple the exemption available to businesses from having to pay property taxes on equipment and machinery.

Sen. Dean Martin, R-Phoenix, said the state is in the fortunate financial position of being able to afford to make the cuts.

He put the first-year costs at about $255 million, the lion's share of which comes from trimming income taxes. That compares with estimates which show that Arizona could have close to $1 billion more in revenues than is needed for ongoing expenses.

That figure is right in line with the $250 million Republican legislative leaders promised in tax relief this year. What this bill does, said Martin, is provide a compromise and road map of how to parcel out those tax cuts -- and who should get them.

On one extreme are legislators who hope to wipe out the state income tax entirely over the next decade. But that proposal, being advanced by Rep. Laura Knaperek, R-Tempe, has a first-year cost of $220 million.

At the same time there is a push for property tax relief, especially by businesses who point out that they pay a disproportionate share of that levy.

There are two reasons for that.

First, business property is assessed for tax purposes at 25 percent of its value, versus 10 percent for residential property. So the owner of a business valued at $250,000 pays 2.5 times more than the owner of an identically priced home.

Second, businesses have to pay taxes on the value of their "personal property," things ranging from printing presses and computers to desks and file cabinets. There is no similar levy on residential property owners.

SB 1545 would exempt the first $150,000 of business equipment from property taxes. That is up from the current $57,632.

It also would eliminate over two years the state property tax, a figure that is expected to be 44 cents per $100 of assessed valuation, a figure that computes out to $275 for a $250,000 business. But that also helps homeowners, cutting their taxes by $110 a year for a $250,000 home.

Despite Thursday's bipartisan vote, the tax cut package is at sharp odds with one being proposed by Democratic Gov. Janet Napolitano. She is pushing only $100 million in tax relief. And none of that would apply broadly but only to certain groups.

For example, she wants tax credits for small businesses that offer health insurance to their workers. And Napolitano also is looking at cutting vehicle license taxes for the most fuel-efficient cars and providing a sales tax "holiday" for the purchase of school supplies.

Martin also has a separate tax holiday proposal that already has been approved by the full Senate.